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Apple's app pay scale

Apple is selling iPhones and iPads at a breakneck pace, but how much does the tech giant pay its legion of app developers?

One of the more interesting numbers reported by Apple CEO Tim Cook during the last earnings conference call this month was the total payment to developers during the fourth quarter. This is the first time that Apple reported a quarterly payout to developers.

The figure was $US700 million and it was mentioned in reference to the total payments to date of $US4 billion. That figure is interesting at least because it gives an idea of what Apple obtained in total sales of apps. As it retains 30 per cent and pays 70 per cent to developers it’s safe to assume that Apple kept close to $US300 million and the total “gross” sales was $US1 billion in the fourth quarter.

The $US700 million is interesting for another reason. The $1 billion in gross income can be tested against another set of data. As the countdown has already started, sometime in February Apple will report 25 billion total apps downloaded. The last such milestone was October 4th when it reported 18 billion downloads. Assuming that they will cross 25 billion by February 25th, we can obtain an estimate for the download rate per day: about 48.6 million apps a day.

This figure can be plotted historically:

I plotted it in relation to the songs download rates obtained through a similar method. Although we don’t have an update on total songs downloaded, the rate is unlikely to have accelerated as much as apps did. The following charts also show the reported total downloads by media:

Normalising to the same starting date, the two media ramps are shown below:

But back to that $US700 million sum paid to the developers and the implied $US1 billion in gross revenues. Taking that figure and dividing it by duration of the quarter yields a figure of $US310 million per month gross app revenues. The 25 billion downloads to date paired with the $US4 billion in payments to developers gives us an approximate revenue per download of 23 US cents. Computing the monthly revenue from the 48.6 million/month rate we get about $US316 million per month. Pretty close to the $US301/mo that the quarterly payout implies. This therefore also confirms the 23 US cents per download figure (it looks a bit high but not by much.)

So the $US700 million payout and the $US4 billion payout to date and the 25 billion downloads all fit together as consistent pieces of a puzzle that give insight into the iTunes economy.

Apple reported nearly $US7 billion in iTunes stores revenue (though the apps were only counted for the 30 per cent agency fee.) during 2011.

If gross revenues were measured, the iTunes economy was about $US10 billion in 2011.

Payments to content publishers were in the vicinity of $US7 billion of which $US2.1bn was paid to developers.

Operating costs for iTunes were therefore approximately $US3 billion/yr.

One other interesting result: Since iOS devices started shipping, there have been over 335 million units sold. As 25 billion apps have been downloaded into them then about 75 apps were downloaded for each unit sold. Since we know the average price (23cents) and the payout ratio (70 per cent), it all boils down to the fact that each iOS device generates $US17 of iTunes income from apps alone. That also means that each iOS device sold results in a minimum payment of $US12 to iOS developers.

I’ve noted previously that Apple should be valued as a recurring payment from a satisfied customer base. Now it becomes clear that Apple should also be seen as a recurring ecosystem payment system. Given a 24 month lifecycle, the amount is approximately 50 US cents per device per month.

In other words, if you are an iOS developer you should note iOS device sales and use the rule of thumb that each one sold creates 50 US cents of monthly income for you and your peers to share.

Horace Dediu is founder and managing director of Asymco, a Helsinki-based app developer/industry analysis advisory firm, and author of the blog Asymco.

Horace Dediu

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